MannKind Corporation: Past, Present, and Future

Since going public in 2004, biopharmaceutical companyMannKind Corp. has given its investors a wild ride. The stock peaked around $24 per share in September 2004, and has been on a steady decline over the last decade to the middle single-digits. Bulls and bears alike have passionately debated the merits of this investment for years.

How did MannKind's story begin?Although its origins can be traced back to 1991, the company as we know it today was formed in 2001, when Pharmaceutical Discovery Corp. merged with two other companies,AlleCure and CTL, and officially changed its name to MannKind. The Valencia, California-based biopharm takes itsname from founder and 37.7% stockholder Alfred E. Mann.

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MannKind's executive chairmanAlfred Mannis a truly extraordinary entrepreneur, having founded and funded 14 different companies in his career. Nine of those companies were subsequently acquired by other companies,allowing investors to cash in on almost $8 billion in value creation.

Mann has a long history in starting companies that focus on developing diabetes treatments, including founding MiniMed. He served as the company's chairman and CEO until August 2001 when it was acquired by Medtronic.

Given Mann's history and deep knowledge base, it should come as no surprise that MannKind's first commercially available product is designed to address the sizable diabetes market. The Food and Drug Administration approved MannKind's rapid-acting inhaled insulin product, Afrezza, in 2014, and the drug officially launched earlier this year.

TheopportunityThe Centers for Diseases Control and Prevention estimates 29.1 million Americans suffer from diabetes, with that number reaching as high as 387 million worldwide. These numbers are expected to grow rapidly, with an estimated 592 million patients expected to be diagnosed with diabetes worldwide by 2035.

MannKind last year announced a global licensing agreement with Sanofi for the development and commercialization of Afrezza. This partnership gave MannKind a much needed up-front payment of$150 million and potential milestone payments of up to $775 millionif certain sales and regulatory milestone targets are hit. Under the agreement, Sanofi will receive 65% of sales profit from the drug, leaving 35% to MannKind.

Afrezza, which is designed to treat both type 1 and type 2 diabetes, employs a proprietaryTechnosphereformulation technology based on a class of organic molecules that are designed to self-assemble into small particles onto which drug molecules can be loaded. Afrezza has several benefits over currently available treatments options from Novo Nordiskand Eli Lilly, which currently dominate the insulin market.

Firstly, since Afrezza is inhaled, it eliminates the need for patients to take mealtime injections, which can total four to six shots per day.

Also, because Afrezza is absorbed in the lungs, the insulin acts much faster than it does when administered via an injection. Afrezza is designed to reach peak effectiveness in 12-15 minutes, which is much quicker than the drugs now on the market. This faster action can help patients better control their blood sugar before and after a meal.

Profitability on the way?Without any products on the market, MannKind did not generate any revenue in 2014. Meanwhile, the company spent heavily on research and development to bring Afrezza to market, and its net loss for the year hit $198 million. MannKind has accumulated a total deficit of $2.5 billion in its 24-year existence.

However, the company's near-term financial picture finally looks promising. The FDA approval of Afrezza entitled the company to milestone payments from Sanofi, including the aforementioned $150 million in the third quarter and an additional $50 million in the fourth quarter.

Funky accounting rules prevent MannKind from counting these payments as revenue, which is why 2014 still showed a goose egg in the revenue line. However, on a cash flow basis, the company actually generated $4 million in cash for the year.

MannKind ended the year with $120 million in cash, which did not include the $50 million it received from Sanofi. A loan agreement also authorizes the company to borrow up to $175 million from Sanofi to fund their share of net losses for the launch of Afrezza. MannKind also has an "at-the-market" offering in place that could allow the company to raise up to $50 million. An at-the-market stock offering gives the company the ability to incrementally sell shares on the open market to raise funds, which dilutes current shareholders.Add all these up, and MannKind's near-term financial picture looks just fine.

This should be an exciting year for MannKind investors, as their patience might finally pay off. Will Afrezza be the blockbuster drug that MannKind needs? This Fool will certainly be watching closely to see what happens next.